Home prices falling? (mortgages, buyers, calculated)

[grmi66]

Used to live in that neighborhood and walked my dogs past those two houses about every other day. Moved in about 7 years ago when it was still a bit gritty and funky. Cool place and most houses sold for at best $200,000. Which was about what they were worth, because the joke in the neighborhood was that you need to spend at least $100,000 on stuff you can't see before you can spend money on upgrades that you can see. We stopped into the corner market last time we were in Phoenix and the whole vibe had changed, didn't care for it. Can't quite put my finger on it, but noticed that the market had changed owners and no longer had a homeless/wino section of the beverage cooler. No more 40's, or the wino trifecta of Thunderbird, Mad Dog and Night Train.

[MN-Born-n-Raised]

From the Cromford Report:
Jan 2021:
"Despite rumors of the U.S. housing market cooling off, Greater Phoenix has moved farther into a seller’s market over the past month. Growing disparity between supply and demand in our market means there is little evidence to suggest price
appreciation will slow in the first quarter. After a strong summer, new listings slowed down in the 4th quarter of 2021, while the number of accepted contracts remained high. The result is 2022 starting off with another historically low supply level, and listings under contract, while 7.6% below 2021, still strong with the 2nd highest count since 2014.
It’s an accepted opinion among local analysts that income levels in Greater Phoenix cannot sustain another year of 28% annual appreciation, especially if interest rates continue to increase. However, seeing there is little relief from homebuilders adding more supply to the equation, it’s reasonable to expect the market to respond with a softening of demand. This trend started to reveal itself in the 2nd Quarter of 2021 in a subtle manner.

Since 2014, buyers purchasing their primary residence have made up 70%-76% of total residential purchases in Maricopa and Pinal County. In Q2 2021, that percentage dipped to 67%, and declined to 63% by October. While traditional
buyers retreated, competing buyers for 2nd homes and institutional buyers made up of Wall Street-backed iBuyers, hedge funds and other investment groups stepped in. Price appreciation slowed from an average of 3.3% per month to 1.1%.
While 2022 is coming out of the gate strong, and the Spring is typically the strongest season for buyers, it remains to be seen how much control investors and 2nd home buyers will take if traditional home buyers retreat. The last time they ignored affordability issues within the community, everyone lost in the end.

Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report
©2022 Cromford Associates LLC and Tamboer Consulting LLC"

[MN-Born-n-Raised]

Originally Posted by MN-Born-n-Raised

From the Cromford Report:
Jan 2021:
"Despite rumors of the U.S. housing market cooling off, Greater Phoenix has moved farther into a seller’s market over the past month. Growing disparity between supply and demand in our market means there is little evidence to suggest price
appreciation will slow in the first quarter. After a strong summer, new listings slowed down in the 4th quarter of 2021, while the number of accepted contracts remained high. The result is 2022 starting off with another historically low supply level, and listings under contract, while 7.6% below 2021, still strong with the 2nd highest count since 2014.
It’s an accepted opinion among local analysts that income levels in Greater Phoenix cannot sustain another year of 28% annual appreciation, especially if interest rates continue to increase. However, seeing there is little relief from homebuilders adding more supply to the equation, it’s reasonable to expect the market to respond with a softening of demand. This trend started to reveal itself in the 2nd Quarter of 2021 in a subtle manner.

Since 2014, buyers purchasing their primary residence have made up 70%-76% of total residential purchases in Maricopa and Pinal County. In Q2 2021, that percentage dipped to 67%, and declined to 63% by October. While traditional
buyers retreated, competing buyers for 2nd homes and institutional buyers made up of Wall Street-backed iBuyers, hedge funds and other investment groups stepped in. Price appreciation slowed from an average of 3.3% per month to 1.1%.
While 2022 is coming out of the gate strong, and the Spring is typically the strongest season for buyers, it remains to be seen how much control investors and 2nd home buyers will take if traditional home buyers retreat. The last time they ignored affordability issues within the community, everyone lost in the end.

Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report
©2022 Cromford Associates LLC and Tamboer Consulting LLC"

My bad. This is from Jan 2022.

[john3232]

Met the new neighbors on my block here in Mesa. Moved to AZ from out of state. New owners paid 20-30k more than I thought the house worth.

Sold in less than 3 weeks.

[Ponderosa]

The Fed is talking a full point or better in rate increases this year. Fed de-leveraging will push bond prices down (rates go up). One or more percent matters proportionally when the rate has been near zero. Interest is the lion's share of a mortgage payment. Prices are already out of reach for most potential buyers - certainly for new entrants - and that will further exacerbate the problem. There is a limit here, even though homeowners don't want to acknowledge that. Inflation (appreciation) will slow and prices in some sectors where there are affordability challenges will come down by year's end. Deflation discourages buying leading to more deflation.

[Bates419]

Originally Posted by Ponderosa

The Fed is talking a full point or better in rate increases this year. Fed de-leveraging will push bond prices down (rates go up). One or more percent matters proportionally when the rate has been near zero. Interest is the lion's share of a mortgage payment. Prices are already out of reach for most potential buyers - certainly for new entrants - and that will further exacerbate the problem. There is a limit here, even though homeowners don't want to acknowledge that. Inflation (appreciation) will slow and prices in some sectors where there are affordability challenges will come down by year's end. Deflation discourages buying leading to more deflation.

On a 25 year mortgage interest would have to be 4% before interest payment is the same as principal payment on a mortgage.

[Ponderosa]

Originally Posted by Bates419

On a 25 year mortgage interest would have to be 4% before interest payment is the same as principal payment on a mortgage.

Not sure what you are saying here. At 4% interest is about 1 1/2 times what principal is on a 25 and it does not even out until about 100 payments. I Interest is the main expense in home ownership and increases of 33% like we are going to see this year in interest rates will put homes out of reach for millions more. Something has to give and that will be prices.

(and just about everyone gets a 30 - especially first time buyers - so the interest impact is even more. If prices hold because of intractable supply issues, then we will soon see common 40 year mortgages - maybe even 50. Some countries already have 100 year terms. As the car salesman once said to me "Look at the payment, not the price".

[john3232]

Originally Posted by Ponderosa

Not sure what you are saying here. At 4% interest is about 1 1/2 times what principal is on a 25 and it does not even out until about 100 payments. I Interest is the main expense in home ownership and increases of 33% like we are going to see this year in interest rates will put homes out of reach for millions more. Something has to give and that will be prices.

(and just about everyone gets a 30 - especially first time buyers - so the interest impact is even more. If prices hold because of intractable supply issues, then we will soon see common 40 year mortgages - maybe even 50. Some countries already have 100 year terms. As the car salesman once said to me "Look at the payment, not the price".

My guess is 40 year loans will become more widely available in the coming years:

The New 40-Year Mortgage Modification. And What It Means For You.
https://www.forbes.com/advisor/mortg...-modification/


Can you get a 40-year mortgage?
https://www.bankrate.com/mortgages/w...ear-mortgages/

[Bates419]

Originally Posted by Ponderosa

Not sure what you are saying here. At 4% interest is about 1 1/2 times what principal is on a 25 and it does not even out until about 100 payments. I Interest is the main expense in home ownership and increases of 33% like we are going to see this year in interest rates will put homes out of reach for millions more. Something has to give and that will be prices.

(and just about everyone gets a 30 - especially first time buyers - so the interest impact is even more. If prices hold because of intractable supply issues, then we will soon see common 40 year mortgages - maybe even 50. Some countries already have 100 year terms. As the car salesman once said to me "Look at the payment, not the price".

Using an easy $100K mortgage, it works for all numbers. The interest payment is 100K X 4% or $4000 per year. That's $333 per month in interest. A 25 year mortgage is 25 years times 12 payments per year for a total of 300 payments. 100,000 divided 300 is $333 per month for principal.

They are the same.

[Ponderosa]

Originally Posted by Bates419

Using an easy $100K mortgage, it works for all numbers. The interest payment is 100K X 4% or $4000 per year. That's $333 per month in interest. A 25 year mortgage is 25 years times 12 payments per year for a total of 300 payments. 100,000 divided 300 is $333 per month for principal.

They are the same.

OK. So what? Who really pays attention to such a thing? It's affordability - monthly payment that matters more than the ratio of principal to interest over the life of the loan.

I'll say it again. Interest rates rising will price out potential buyers faster than rising prices. Take both like we have now (or soon will) and home values are seriously threatened. Is it 2006 again? I don't think so, but I also think there is a near certainty of home prices rising more slowly than consumer inflation and an outside chance at 10% correction.